Articles Posted in Litigation/Business Trials/Business Lawsuits/Business Litigation

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In Illinois, there are several circumstances under which a partner can sue another partner (Battles v. LaSalle Nat. Bank, 240 Ill.App.3d 550 (1992)), (In re Ascher, 141 B.R. 652 (1992), (Hux v. Woodcock, 130 Ill.App.3d 721 (1985)):

1. A partner can sue another for a breach of fiduciary duty, such as if a partner sells partnership property to a third party without approval from all partners (Battles v. LaSalle Nat. Bank, 240 Ill.App.3d 550 (1992)), (Nussbaum v. Kennedy, 267 Ill.App.3d 325 (1994).

2. A partner or partnership can bring an action against a co-partner if the plaintiff’s claim can be decided without a full review of the partnership accounts. This means that if the issue between partners can be resolved without an accounting, one partner can sue the other. However, if such an issue requires an accounting, that is the proper remedy to seek under the Illinois Partnership Act (In re Ascher, 141 B.R. 652 (1992)).

3. The capacity to sue is determined under Illinois law, and a partnership must sue in the name of all its partners (Stotler and Co. v. Reisinger, Not Reported in F.Supp. (1987). In other words, to sue a partnership, it is necessary to sue and serve all of the partners (Gerut v. Poe, 11 F.R.D. 281 (1951)).

4. A partner may not sue individually to recover damages for injury to the partnership (Hux v. Woodcock, 130 Ill.App.3d 721 (1985)), (Creek v. Village of Westhaven, 80 F.3d 186 (1996)). The lawsuit must be filed on behalf of the partnership and not the individual partner.

5. In cases involving a limited partnership, a limited partner can sue the general partners for alleged breaches of fiduciary and contractual duties arising under a written limited partnership agreement (Illinois Rockford Corp. v. Dickman, 167 Ill.App.3d 113 (1988)). However, limited partners do not have a cause of action for damages to their interest in a limited partnership as long as the partnership exists and has not been dissolved or liquidated (766347 Ontario Ltd. v. Zurich Capital Markets, Inc., 249 F.Supp.2d 974 (2003)).

6. A partner may maintain an action against a co-partner absent an accounting in certain situations, including upon claims involving express personal contracts between the partners, and also upon claims involving the failure to comply with an agreement constituting a condition precedent to the formation of a partnership (Hux v. Woodcock, 130 Ill.App.3d 721 (1985)).

7. Illinois courts may imply rights of action from Illinois statutes under certain circumstances. These include instances where the plaintiff is a member of the class for whose benefit the Illinois legislature enacted the statute; implication of the right is consistent with the underlying purpose of the statute; the plaintiff’s claimed injury is one which the Illinois legislature designed the statute to prevent; and a private right of action is necessary to effectuate the purposes of the statute (Bane v. Ferguson, 707 F.Supp. 988 (1989)). Continue reading ›

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In Illinois, a derivative lawsuit can be filed by an individual shareholder or a member of a limited liability company (LLC) to enforce a right that belongs to the corporation or the LLC (Silver v. Allard, 16 F.Supp.2d 966 (1998)), (Pistone v. Carl, Not Reported in N.E. Rptr. (2020). The aim of such a lawsuit is to protect the interests of the corporation or the LLC from the misconduct of its directors and managers (Silver v. Allard, 16 F.Supp.2d 966 (1998)).

There are certain prerequisites for filing a derivative lawsuit. Firstly, the shareholder or member must make a demand upon the board of directors to enforce a corporate right (Silver v. Allard, 16 F.Supp.2d 966 (1998)). However, this demand requirement can be excused in certain situations. For instance, if the shareholders can demonstrate that the directors were aware of the misconduct but consciously chose not to act, the demand can be excused. In such cases, the plaintiffs would effectively be arguing the futility of such a demand. It’s important to note, as per Illinois choice of law rules, that the pre-suit demand requirement is governed by the law of Delaware in the case of corporations incorporated there (Wells v. Reed, — N.E.3d —- (2024). Continue reading ›

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Yes, punitive damages can be awarded in derivative actions, but these awards often come with certain conditions. Punitive damages are typically awarded when the tort committed involves fraud, actual malice, deliberate violence or oppression, or when the defendant displays willful or grossly negligent behavior that shows a wanton disregard for the rights of others. This means that the defendant’s conduct must show a high degree of moral culpability for such damages to be awarded.

There are specific cases in which courts have allowed for punitive damages in derivative actions. For instance, in Caparos v. Morton, punitive damages were awarded in a derivative action for a breach of fiduciary duty against general partners.

It’s important to note that punitive damages are generally only awarded in the presence of compensatory damages. As established in Groshek v. Trewin and reaffirmed in Epic Systems Corp. v. Tata Consultancy Services Ltd., punitive damages cannot be awarded when the recovery of compensatory damages is not justified. This suggests that the availability of punitive damages is governed by whether compensatory damages are recoverable, not by whether an “actual injury” has been inflicted.

The case of Exxon Shipping Co. v. Baker also suggests that a punitive award should be limited to an amount equal to compensatory damages.

In Illinois, punitive damages have certain restrictions. For instance, they may not be recovered in cases of medical or legal malpractice.
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Under Illinois law, various defenses are recognized for libel actions. The first defense is the innocent construction doctrine. This doctrine posits that if a statement could be construed in a non-defamatory way, it cannot be considered defamatory.

Another defense is the expression of opinion. Statements of opinion, even if they are defamatory, do not result in a defamation claim if the statement cannot be reasonably interpreted as stating actual facts. The statement must have a precise and readily understood meaning, be verifiable, and its literary or social context should signal that it has factual content.

The defense of truth is also recognized. A defamatory statement can be defended if it is substantially true and was published with good motives and for justifiable ends. This is reflected in the Illinois Constitution which states: “In trials for libel, both civil and criminal, the truth, when published with good motives and for justifiable ends, shall be a sufficient defense”. It is enough to show that the publication is “substantially true”, or that the “gist”, the “sting”, or the “substantial truth” of the defamation can be justified.

The defense of ‘fair comment’ is another possible defense. In addition, there is a defense of privilege as a means for redressing grievances. Continue reading ›

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When a shareholder or LLC (Limited Liability Company) member faces a “freeze-out” or “squeeze-out,” they are typically being pushed out of the company’s decision-making process or their economic interests are being diminished. This can be a challenging and complex situation, requiring a careful and strategic approach. Here are some general steps that might be considered:
  1. Understand Your Legal Rights and Documents: Review the company’s governing documents, such as the bylaws, shareholder agreement, or operating agreement. These documents often outline the rights and obligations of shareholders or members and may contain provisions relevant to your situation.
  2. Gather Evidence: Document any actions that contribute to the freeze-out or squeeze-out. This could include meeting minutes, emails, financial statements, or any other relevant communications.
  3. Seek Legal Advice: Consult with an attorney who specializes in corporate law, particularly someone experienced in shareholder/member rights in LLCs or corporations. They can provide advice specific to your situation, including the interpretation of any legal documents and the identification of any breaches of fiduciary duties or violations of state laws.
  4. Explore Negotiation and Mediation: Before taking any legal action, consider whether the situation can be resolved through negotiation or mediation. These alternative dispute resolution methods can often be less costly and time-consuming than litigation.
  5. Consider Your Goals: Identify what you want to achieve. Do you want to regain your position in the company, receive compensation for your lost interests, or simply exit the company in a fair manner? Your goals will guide your strategy moving forward.
  6. Possible Litigation: If negotiations fail and your legal rights are being significantly infringed upon, litigation may be necessary. Your attorney can advise on the likelihood of success and the costs involved.
  7. Financial Implications: Consider the financial impact of your chosen course of action, including legal fees, potential loss of income, and any tax implications.
  8. Communication with Other Shareholders/Members: If other shareholders or members are also being affected, it might be beneficial to communicate with them. There could be strength in numbers, either in negotiations or in legal action.
  9. Understand the Impact on Relationships: Consider the long-term business relationships and how they will be affected by your actions. Sometimes the best legal strategy might not align with your long-term business or personal relationships.
  10. Plan for the Future: Regardless of the outcome, think about your future with or without the company. This might involve considering other business opportunities or roles.

Every situation is unique, and the best course of action will depend on the specific circumstances, the governing laws of the state where the LLC or corporation is registered, and the details of the company’s governing documents. It’s crucial to balance legal considerations with practical business and personal considerations.

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The elements of a wrongful removal or freezing out of a partner in a business context include the following:

1. Exclusion of a partner from participation in the business: This implies that a partner is denied the right to participate in the operations and decisions of the business [1]. For instance, actions such as serving a partner with a notice of default, stating that they are no longer a partner, removing their name from partnership tax returns, and refusing to provide them with access to partnership books, records, and information can be seen as a wrongful exclusion.

2. Violation of implicit duty of good faith between partners: Partners owe each other the duty to exercise the highest degree of honesty and good faith in their dealings and in the handling of partnership assets. A genuine issue of material fact that precludes summary judgment on whether expulsion of a partner violated this duty also constitutes an element of a wrongful removal or freeze out.

3. Breach of the right of a partner to a formal accounting: Any partner has the right to a formal accounting in relation to partnership affairs. If this right is breached through a wrongful exclusion, it forms one of the elements.

4. Disregard of the partner’s advice and wishes, irreconcilable differences and personal ill-will between the partners, refusal to keep accounts open to the co-partners, refusal to account at reasonable times, and refusal to pay over profits as agreed: These are also listed as acts and circumstances that can justify a decree of dissolution and therefore can be seen as elements of wrongful removal or freeze-out.

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Illinois is home to a vibrant business landscape, with partnerships being a popular choice for entrepreneurs and professionals seeking to collaborate. However, like any business relationship, disputes can arise in partnerships. When facing a partnership dispute in Illinois, having the right legal representation is crucial. In this blog post, we’ll explore the best lawyers to handle Illinois partnership disputes, guiding you toward skilled professionals who can help you navigate these complex legal waters.

  1. Business Litigation Experience: When dealing with a partnership dispute, you want a lawyer with extensive experience in business litigation. Look for attorneys who concentrate in resolving complex business disputes, including those related to partnerships. They should have a deep understanding of Illinois business laws, contract law, and the intricacies of partnership agreements.
  2. The ADR Alternative: Alternative dispute resolution (ADR) methods, such as mediation and arbitration, can be effective ways to resolve partnership disputes without going to court. Seek out lawyers who are well-versed in ADR processes and can guide you through negotiation and settlement discussions.
  3. The Experienced Negotiator:Effective negotiation is often the key to resolving partnership disputes amicably. Lawyers skilled in negotiation techniques can help you reach favorable settlements, saving time and money in the long run.
  4. The Seasoned Corporate Attorney:Many partnership disputes involve complex corporate structures and governance issues. Lawyers with a background in corporate law can provide valuable insights into the intricacies of partnership agreements and the rights and responsibilities of partners.
  5. The Local Legal Expert: Partner with attorneys who have a deep understanding of Illinois state laws and regulations, as well as familiarity with local court procedures. Local knowledge can be invaluable when navigating the Illinois legal system.
  6. The Collaborative Problem Solver:A lawyer who encourages collaboration and teamwork can often help facilitate smoother resolution processes. Look for professionals who prioritize finding solutions that benefit all parties involved.
  7. The Seasoned Litigator: In some cases, litigation becomes unavoidable. Lawyers with strong litigation skills can represent your interests effectively in court, advocating for your position and protecting your rights.
  8. The Reputation Matters: Investigate lawyers’ reputations within the legal community. Seek referrals or read reviews and testimonials to gain insights into their track record of successfully handling partnership disputes.
  9. The Client-Centered Advocate: Choose attorneys who prioritize your needs and concerns. Effective communication and a client-centered approach can make the legal process more manageable during the stress of a partnership dispute.
  10. The Problem-Solving Team: In complex partnership disputes, assembling a legal team with diverse skills and areas of expertise can be advantageous. Your lawyers should collaborate seamlessly to address all aspects of your case.

Navigating partnership disputes in Illinois demands legal expertise, negotiation skills, and a deep understanding of state laws and regulations. The best lawyers to handle these disputes are those who combine these qualities and prioritize finding effective, efficient, and mutually beneficial resolutions. With the right legal team by your side, you can protect your interests and work towards a favorable outcome in your Illinois partnership dispute. Continue reading ›

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In Illinois, as in many other jurisdictions in the United States, co30-333rporate or LLC oppression lawsuits typically involve allegations of minority shareholders or members being treated unfairly or in bad faith by the majority shareholders or members. These lawsuits are often brought under various legal theories, such as breach of fiduciary duty or breach of the implied covenant of good faith and fair dealing. Below are some key points related to fairness and good faith in Illinois corporate or LLC oppression lawsuits:

  1. Fiduciary Duties: Shareholders in corporations and members in LLCs owe certain fiduciary duties to the company and to each other. These duties include the duty of loyalty and the duty of care. Majority shareholders or members have a duty to act in good faith and fairness when dealing with the company and minority shareholders or members.
  2. Business Judgment Rule: Illinois, like most states, applies the business judgment rule, which generally provides protection to corporate or LLC directors and officers for their decisions as long as they are made in good faith, with due care, and in the best interests of the company. However, the rule does not shield them from liability for self-dealing or actions taken in bad faith.
  3. Oppression Claims: Minority shareholders or members may bring oppression claims if they believe that the majority has engaged in oppressive, fraudulent, or unfairly prejudicial conduct that harms their rights and interests. Courts will examine whether the conduct was done in bad faith and whether it resulted in oppression or unfair treatment.
  4. Judicial Remedies: If a court finds that oppression or unfair treatment has occurred, it may order a variety of remedies, such as a buyout of the minority’s interest, a dissolution of the company, or other equitable relief designed to rectify the harm and protect the minority’s rights.
  5. Operating Agreements and Shareholder Agreements: The terms of the operating agreement (for LLCs) or the shareholder agreement (for corporations) often play a significant role in determining the rights and obligations of the parties involved. These agreements may contain provisions related to governance, dispute resolution, and protections against oppression.
  6. Good Faith and Fair Dealing: In addition to specific statutory and fiduciary duties, Illinois law recognizes the implied covenant of good faith and fair dealing in contracts, including operating agreements and shareholder agreements. This implies that parties must act honestly and fairly in their dealings with each other, and they should not act to undermine the other party’s reasonable expectations.

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When two founders of a company sued the company that had come into possession of the founders’ patents and intellectual property rights, the district court dismissed their suit for lack of personal jurisdiction. The appellate court affirmed on appeal, finding that the plaintiffs’ lawyer contrived to create personal jurisdiction by ordering a single item from the defendant company be shipped into the state of Illinois, even though the defendant company did not do business in or specifically target the Illinois market. The appellate panel also noted that the conduct that allegedly created personal jurisdiction had happened after the plaintiffs filed suit and was therefore clearly contrived.

Tai Matlin and James Waring, and other business partners co-founded a company called Gray Matter Holdings, LLC in 1997. Matlin and Waring developed certain products for Gray Matter, including an inflatable beach mat known as the “Snap-2-It” and a radio-controlled hang glider called the “Aggressor.” In 1999, facing failure of the company, Matlin and Waring entered into a Withdrawal Agreement with Gray Matter wherein they sold their partnership shares and forfeited their salaries. The agreement also assigned Matlin and Waring’s intellectual property to Gray Matter but entitled them to royalty payments. In the following years, Matlin and Waring frequently brought Gray Matter to arbitration to enforce royalty payments.

In 2002, Gray Matter filed an assignment of the products’ intellectual property rights with the United States Patent and Trademark Office. Matlin and Waring allege that Gray Matter filed the assignment without their knowledge and that the company forged Waring’s signature on the paperwork. The following year, Gray Matter sold assets to Swimways, including the patent rights to Matlin and Waring’s products. A 2014 arbitration between Gray Matter and Matlin and Waring determined that Gray Matter did not assign the Withdrawal Agreement to Swimways upon the sale of the products and that the plaintiffs were owed no further royalties. In 2016, Spin Master acquired Swimways and intellectual property rights. Continue reading ›

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Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.

VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.

The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.

In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit. Continue reading ›

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